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Mehjoo - Time for Action

9th Oct 2013
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It is rare for a single tax case to have quite such an impact on the accountancy profession as that of Mehjoo v Harben Barker, which has sent many practitioners into a tailspin.

The reason is pretty simple. As a rule, accountants try to help their clients to the maximum degree possible and, in return, expect grateful thanks allied to a decent fee.

Things occasionally can go wrong but usually the worst-case scenario is a reduction in the fee and, occasionally a departing client.

Most of us have probably never been on the wrong end of a significant legal claim that was settled out of court, let alone decided in front of a judge, even in a tribunal.

As such, we could work in comfort and confidence, feeling almost certain that our clients loved us and the service that we were delivering, always grateful when we travelled that extra mile on their behalf.

In these days of regulation and increased complexity in legislation, this will have to change.

A generation ago, the gentleman (in those benighted times the female version hadn't yet come on the scene) accountant would prepare accounts and corporation tax computations for a family company, deal with the personal tax returns for each of the directors and run the family trust.

It would never have occurred to him that he wasn't capable of doing all of this to the satisfaction of his client and in compliance with all legislation.

Now, specialisation is fashionable and Mehjoo will put the onus on every accountant to ensure that he/she is not overstepping the mark.

Without going into the case in any detail, a trusted adviser type accountant provided tremendous support to a long-standing friend (remember the article from two weeks ago?) to mutual benefit for decades.

However, when the friend discovered that a tax bill which ran into hundreds of thousands of pounds could have been avoided by a relatively standard tax planning strategy the courts beckoned, the problem here appears to have been that an adviser gave the impression of a greater level of expertise than was actually the case. Worse, he got found out.

The result was disastrous for the accountant, who got taken to the cleaners and seems unlikely to win at appeal.

For the rest of the profession, this is the wake-up call that they probably did not want or expect to receive.

Winging it, that favourite methodology of so many in most areas of 21st-century life is all very well but not if the consequence could be battles with lawyers and insurance companies, not to mention the inevitable consequent reputational embarrassment.

What is the moral of the story? Avoid giving advice unless you are 100% certain not only that it is correct but also there are no alternatives. The first bit is relatively easy. It just requires poring over big volumes of very small print or the Internet equivalent.

Ensuring that the advice is also complete is much more of a challenge and, in many cases, the best thing that any small (or to be fair larger) accountant could do is admit defeat and bring in help from experts, whether colleagues, larger firms of accountants, solicitors or possibly even barristers.

Don't keep your head buried in the sand any longer. Such a strategy might feel comforting and help the short-term profitability of your practice but ultimately it could prove desperately expensive.

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Replies (6)

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By ammumford
14th Oct 2013 11:51

Andrew Mumford

When I first qualified, I thought I was God's gift to the profession. Many years later, I now know better. To coin a phrase, what is dangerous is not the known unknowns, but the unknown unknowns. The benefit of many years in practice teaches you to recognise when you don't know what you are talking about, and to make sue you do before giving advice. That is what professionals are paid for.

If you want free advice, ask the bloke next to you in the pub, but don't expect to be covered by professional negligence if it turns out to be b***lks.

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By The Black Knight
14th Oct 2013 12:45

measure twice cut once

Measure twice cut once.

I think this shows the risk of flogging a scheme you don't really understand. That probably don't work when you could have used the simple stuff first.

Much use is made of this in crap marketing telling us we are all going to get sued if we don't peddle these dubious schemes.

If you keep the commission which you are not supposed to then you gave advice to that value I would say and therefore deserve to get sued.

Do these schemes constitute advice or are they just a product. (regulated investment area)

So if you are advising in an independent fashion you would need to know all the ins and outs of every scheme from every provider in order to give the correct (independent and objective) advice.

Fat chance of doing that then or do you join every secret club going.

These schemes are not for professionals.

If you (the client) have not taken advice should the penalties be at least careless error?

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By TMR
14th Oct 2013 13:21

Unknown unknowns

It's all very well understanding and indeed getting the best advice available but what about legislative changes or the Government finally clarifying what was a clearly (and has been for a very long time) Courts having one view and HMRC another?

Take EBT's and loans to directors/employees. Many firms have long advised clients that EBT's can (within reason) make loans to directors and employees, we're talking here genuine loans not the disguised incomes that have flouted the rules of late.

Those clients have been stung by hefty paye/nic notices on loans taken out before the FA 2010 clarified the situation. We're still waiting clarity but needless to say out of court settlements are being done simply to move forward.

The client isn't always sympathetic to the profession but also looks for someone to blame.

Damned if you do, damned if you don't.   

 

 

 

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By Vaughan Blake1
14th Oct 2013 14:01

But where does it end?

What of the higher rate taxpayer who has not been advised of the tax saving schemes available?

What of the property purchaser who has not been advised on SDLT saving schemes?

Makes you think!

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By JackHarper
16th Oct 2013 18:02

Risk assess your clients

The client here was facing a tax charge at 10%.OK still £850k. He was prepared to pay £200k to do a scheme which failed. . The accountant had to pay both sums in damages. Presumably insurers paid the major part so all our premiums go up and underwriting capacity shrinks. I'd be trying to sack such clients and not take them on. I'd be concerned if a prospective client said he regarded a 10% tax rate as unacceptably high and that 25% of the tax payable was worth paying to a scheme merchant to get rid of it. Sooner or later such a client will cause you grief.

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Replying to Paul Scholes:
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By The Black Knight
17th Oct 2013 09:58

fair point

JackHarper wrote:

The client here was facing a tax charge at 10%.OK still £850k. He was prepared to pay £200k to do a scheme which failed. . The accountant had to pay both sums in damages. Presumably insurers paid the major part so all our premiums go up and underwriting capacity shrinks. I'd be trying to sack such clients and not take them on. I'd be concerned if a prospective client said he regarded a 10% tax rate as unacceptably high and that 25% of the tax payable was worth paying to a scheme merchant to get rid of it. Sooner or later such a client will cause you grief.

Fair point - perhaps there should be a do you flog aggressive avoidance schemes when you can't get the basics right, £50K additional premium

Seen it many times where people get excited about these schemes it covers up a lack of basic tax and accounts knowledge. If you push on Ramsay and substance over form they don't understand.

or perhaps you need a separate insurance policy.

We are all paying for these morons.

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